Those in power in Beijing are trying to stop the economic collapse with a large number of individual measures. Alone: They shouldn’t do too much.
Premier Li Keqiang, who is responsible for the economy, is currently making many appearances and needs to calm down and explain.
No sooner had the authorities in Shanghai contained the spread of the corona virus and offered the population, who was unnerved after seven weeks of lockdown, the prospect of cautious easing, than the number of infections in two other regions of China skyrocketed. In the Lingshui district not far from the metropolis of Chongqing in central China and in the important industrial city of Tianjin on the outskirts of Beijing, the local governments are fighting new outbreaks.
It seems as if for one source of fire that China’s authorities are fighting with enormous financial and human resources, two new ones are emerging; even with Beijing’s harsh measures, the race against the omicron variant of the corona virus is apparently difficult to win. What is missing is a determined vaccination campaign. At the same time, it is becoming increasingly clear that the central government’s dogged adherence to the zero-tolerance policy is causing a total economic loss.
Economic data worse than expected
The economic data that China’s statisticians presented this week were significantly worse than expected. Retail sales in April fell by more than 11 percent compared to the previous year, and the value of cars sold even fell by 32 percent. The crash in the real estate market also accelerated further. In April, the sale of apartments and houses fell by 40 percent, significantly more than in March. Industrial production fell by almost 3 percent in April. China, it is safe to say, is in the midst of its worst crisis since the student protests on Tiananmen Square were crushed more than three decades ago.
In view of the economic collapse, the government is on the highest alert, also because the misery is now leading to a significant increase in unemployment, especially among young Chinese. The Beijing leadership fears social unrest and is trying to somehow mitigate the economic slump.
Prime Minister Li Keqiang, who is responsible for the economy, hurries from one meeting to the next and repeats the government’s support measures like a mantra: small and medium-sized companies are to be exempted from electricity and water charges and be able to enjoy tax breaks. Provinces, cities and counties should boost investments in new infrastructure and banks should start lending again to buy real estate. On Friday, the People’s Bank of China lowered the reference rate for long-dated loans by 15 basis points to 4.45 percent.
The measures should not have much effect
It is doubtful that the measures will have much effect. The programs from Beijing have to be implemented by the local administrations. But at the behest of Beijing, they are fully occupied with the fight against Covid, and in many cases are also heavily indebted. The latest data shows that government revenues have fallen sharply in recent weeks. The reason: the Corona crisis. Investments in new infrastructure are hardly to be thought of.
In addition, tax cuts do little to help companies if they hardly pay any taxes anyway due to a lack of sales and profits. In many cities, restaurants, shops or hairdressing salons have been deserted for weeks. The intended revival of the real estate market is not likely to materialize either. Many real estate developers and potential buyers are under lockdown. Far more important, however, is that the Chinese have lost confidence in the real estate sector after the government’s massive regulatory interventions in the past. China’s Covid crisis is also a crisis of confidence.